Displaying items by tag: oil

(Houston)

You want to know an asset class that has performed well in periods of rising rates? Take a look at oil. In periods of quickly rising rates and yields, oil and oil-related stocks have done very well. In fact, Van Eck’s Vectors Oil Service ETF (OIH) has been the best performing fund of its type in such periods. “Shares in the VanEck Vectors Oil Services ETF saw a 6.5 percent boost over the month when rates jumped, while shares of the United States Oil Fund ETF ran up 4.5 percent”, according to Kensho.

FINSUM: Oil and banks tend to do well in periods of rising rates. The former because rising rates usually mean a strengthening economy, and the latter because of both an improving economy, but also wider net interest margins.

(Houston)

It is a trying time to be picking where to allocate capital. Bonds are getting walloped and rate rises and trade war fears are weighing on stocks. Recession looms as a threat. With all that in mind, Goldman Sachs thinks it is a good time to buy MLPs. MLPs have been roughly flat this year, but GS thinks good times are ahead. Kinder Morgan is one of the bank’s top picks and they believe the sector will rise on improving cash flow and gains that result from simplifying their corporate structures (most will likely change to C-Corps following last year’s change in the tax code).

FINSUM: MLPs have been pretty flat and this is not the first time Wall Street analysts have called for a surge. Still, this is interesting to consider.

(Houston)

The oil market is continuing to thrive and the near-term outlook is strong. WTI oil, the US benchmark is currently trading at over $72 per barrel, while Brent, the world’s benchmark is at $80. The commodity is moving higher as markets are worried it will not be easy for producers to easily offset the losses of production in Venezuela and Iran, meaning supply may be constrained. OPEC generally agrees that when oil gets to $80 or above, it crimps demand.

FINSUM: The near term outlook for oil looks strong because of renewed US sanctions on Iran. However, in the longer term, the trade war seems likely to take a toll on emerging market economies, which will send oil demand and prices sagging.

(Houston)

Many investors are simply unfazed by the current trade war erupting between the US and China (just look at share prices for evidence). However, even those who may be bullish on equities need to be worried for oil. While the increasing sanctions on Iran are supportive of prices, a trade war would likely be very bad. The reason why is that increasing tariffs would likely cause an economic downturn in emerging markets, which would then heavily sap oil demand, leading prices lower.

FINSUM: The oil and other commodity markets are demand-driven (and realistic) in a way that stocks aren’t. Watch them for where the economy is actually headed.

(Houston)

The oil market is in an odd place right now. Generally described as “tight”—when supply and demand are very close, prices have risen considerably over the last several months. That said, prices have fallen steeply over the last week or so on fears of falling demand and rising supply. That is what makes today’s call on oil so bold. Barron’s, citing a senior research analyst on the oil market, says that prices may rise from their current high $60s range all the way to more than $100 this year. The core of the argument is that supply increases are not enough to offset growing global demand.

FINSUM: We don’t see oil going that high, but it could resume its bullish run. The core idea for us is that the oil market has many ways to increase supply (e.g. using strategic oil reserves, loosening sanctions etc), so we don’t see prices rising that sharply.